22 October 2008
South Africa’s low level of debt, prudent approach to fiscal policymaking and sound banking system will enable the country to weather the global economic storm, Finance Minister Trevor Manuel said in Cape Town on Tuesday.
Delivering his medium term budget policy statement – a three-year guideline to government spending – in Parliament, Manuel said the world was facing an economic crisis on a scale last seen when panic selling led to the Wall Street crash of 1929.
“The storm has arrived, it is fiercer that anyone could have imagined, and its course cannot be predicted,” Manuel said.
However, the South African government had seen the signs early and taken appropriate action, he said.
“Our banks are sound, our investment plans are in place, our course is firmly directed at our long-term growth and development challenges, and we will ride out this storm, whatever it takes, together, on the strength of a vision and a plan of action that we share.”
South Africa’s low level of debt, especially foreign debt, and its prudent approach to fiscal policy, had provided the country with the space to adjust its policies to cushion the economy against the worst effects of the global crisis.
Since 1994, South Africa’s government had balanced meeting basic needs with promoting growth and investment by trying to rein in inflation, gradually relaxing exchange controls, and strengthening bank regulation while steadily accumulating foreign reserves.
“We have adopted a macro-economic framework and a fiscal stance capable of withstanding tough times and protecting our economy and our people during times of global economic turbulence,” he told Parliament.
“I am very aware that our policy decisions have sometimes been controversial.
“But if our economic policies [had been] designed for their short-term populist appeal, if we [had] tried to finance everything, at once, for everybody, then short-term gains would quickly [have given] way to long-term misery,” Manuel said.
Instead, South Africa’s policies were aimed at sustainable progress for workers in factories and on farms, support for families through steadily rising social services and income transfers, businesses that could invest in the confidence of a sound fiscal and financial environment, and public services that would continue to serve future generations.
The minister has increased the total spending allocation for the next three years by more than twice the R80-billion he added in last year’s medium term budget policy statement.
“The unforgiving global economic climate highlights the need for South Africa to address its primary economic policy challenges – reducing unemployment and poverty – in a more concerted way.”
While South Africa would escape the worst effects of the global economic downturn, decreasing export demand, financial volatility, exchange rate fluctuations and uncertain economic conditions in the future would have an affect on the country’s economy.
He revised the country’s economic growth forecast for 2008/09 down from the 4% forecast in February to 3.7%, and from the 4.2% forecast for 2009/10 to 3%.
“Depending on international developments, gross domestic product growth is expected to recover to above 4 percent in 2010 and beyond.”
“The proposed fiscal framework for the 2009 Budget takes into account both slower economic growth and the need to support continued infrastructure investment and social development in a context of heightened uncertainty,” the minister said.
Navigating through such a changed economic environment would be a tough challenge, the minister said, but the government would continue to expand and improve public services, and invest in the infrastructure needed for growth.